Digital transformation and corporate ESG performance: green technological innovation, market concentration, and the twin transformation perspective

This study examines whether, how, and under what market-structure conditions corporate digital transformation improves environmental, social, and governance (ESG) performance. Building on the twin green and digital transformation perspective, this study conceptualizes digital transformation as a dynamic green digital capability rather than merely the adoption of digital technologies. By integrating the Natural Resource-Based View, Stakeholder Theory, and the Porter Hypothesis, we develop a framework in which digital transformation enhances ESG performance by strengthening firms’ data-driven sustainability capabilities and enabling green technological innovation. Using panel data from Chinese A-share listed firms from 2009 to 2023, we find that digital transformation is positively associated with ESG performance, measured by Huazheng ESG ratings. Green technological innovation mediates this relationship, and the empirical results indicate that the mediation is partial and economically modest, suggesting that green innovation is only one mechanism within a broader set of digitalization–ESG channels. Market concentration strengthens the positive effect of digital transformation on ESG performance, indicating that firms in more concentrated industries are better able to appropriate returns from long-term digital and sustainability investments. Additional heterogeneity analyses show that the positive effect of digital transformation is observed across regions and ownership types. In pollution-related industry subsamples, the effect is significant among non-high-polluting firms but not statistically significant among high-polluting firms; however, the between-group difference is not statistically significant. This study contributes to the literature by clarifying the innovation mechanism and market-structure boundary condition through which digital transformation supports comprehensive ESG improvement. The findings suggest that the ESG value of digital transformation depends not only on whether firms adopt digital technologies, but also on whether they develop dynamic green digital capabilities and operate in market environments that support long-term sustainability investment.